Chapter 9 <ul><li>Marketing Channels </li></ul>SDM- Ch 9 Tata McGraw Hill Publishing
Learning Objectives <ul><li>Understand  channel structure  and how channels  manage discrepancies </li></ul><ul><li>Unders...
Channel Functions <ul><li>Information  gathering </li></ul><ul><li>Consumer  motivation </li></ul><ul><li>Bargaining  with...
Role of Intermediaries SDM- Ch 9 Tata McGraw Hill Publishing Company 1 Company 2 Company 3 Intermediary Large number of CO...
Direct Distribution <ul><li>Company to consumers or retailers  without use of intermediaries. Also includes reaching  Inst...
Direct Distribution - Examples <ul><li>Banking services </li></ul><ul><li>Credit cards </li></ul><ul><li>Petrol / diesel –...
Indirect Distribution <ul><li>Goods may move through a set of  intermediaries </li></ul><ul><ul><li>Most FMCG companies fo...
Indirect Distribution - Examples <ul><li>All FMCG, consumer durables and pharmaceutical </li></ul><ul><li>Petrol / diesel ...
Marketing Channel Systems <ul><li>Vertical : </li></ul><ul><ul><li>Corporate </li></ul></ul><ul><ul><li>Administered </li>...
Vertical Marketing System <ul><li>Various parties like producers, wholesalers and retailers  act as a unified system to av...
Corporate VMS <ul><li>Combines  successive stages of production and distribution under single ownership </li></ul><ul><li>...
Administered VMS <ul><li>Co-ordinates distribution activities </li></ul><ul><li>Gains market power by dominating a channel...
Contractual VMS <ul><li>Independent producers, wholesalers and retailers  operate on a contract </li></ul><ul><li>Could ta...
Horizontal Marketing Systems <ul><li>Two or more  unrelated companies join together to pool resources and exploit an emerg...
Multi-channel Distribution <ul><li>Company uses different channels to reach / same or different market segments </li></ul>...
Multi-channel Distribution <ul><li>Used in situations where : </li></ul><ul><ul><li>Same product but different market segm...
Distribution Channels <ul><li>Take care of the following  ‘discrepancies’ </li></ul><ul><ul><li>Spatial </li></ul></ul><ul...
Spatial Discrepancy <ul><li>The channel system helps reduce the  ‘distance’  between the producer and the consumer of his ...
Temporal Discrepancy <ul><li>The channel system helps in  speeding up  in meeting the requirement of the consumers </li></...
Breaking Bulk <ul><li>The channel system reduces  large quantities  into consumer  acceptable lot sizes </li></ul><ul><ul>...
Need for Assortment <ul><li>The channel system helps  aggregate a range of products  for the benefit of the consumer – it ...
Financial Support <ul><li>The channel system provides critical working capital to its customers by  extending credit. </li...
Channel Flows  <ul><li>Forward flow  – company to its customers – goods and services </li></ul><ul><li>Backward flow  – cu...
Three Flows Recognized SDM- Ch 9 Tata McGraw Hill Publishing FORWARD BOTH WAYS BACKWARD Goods and Services Information Pay...
The Five Channel Flows  <ul><li>Physical flow  of goods </li></ul><ul><li>Title flow  of goods (negotiation, ownership and...
Channel Flows <ul><li>Some channel member/s have to perform them </li></ul><ul><li>There is a  cost associated  with each ...
Degree of Involvement SDM- Ch 9 Tata McGraw Hill Publishing Channel formats… Manufacturer C&FA or Distribution Center Dist...
Channel Formats <ul><li>Is decided by who  ‘drives’  the channel system: </li></ul><ul><ul><li>Producer driven </li></ul><...
Producer Driven <ul><li>This is the  effort of the manufacturer  to reach the product to his consumers. Examples: </li></u...
Seller Driven <ul><li>Use of  existing channels  to reach the largest number of end users </li></ul><ul><ul><li>Existing w...
Service Driven <ul><li>These are the people who  facilitate the distribution </li></ul><ul><ul><li>Transporters and freigh...
Other formats <ul><li>Multi-level marketing systems – Amway, Modicare, Tupperware, Herbalife </li></ul><ul><li>Co-operativ...
Channel Levels <ul><li>Zero level  – if the product or service is provided to the end user directly by the company. </li><...
Service Channel  <ul><li>Companies establish their  own unique channels to deliver services  like health, education, banki...
Channel Levels SDM- Ch 9 Tata McGraw Hill Publishing Manufacturer Manufacturer Manufacturer End User Retailer End User Ret...
Key Learnings <ul><li>Marketing channels are responsible for  flows – physical possession, title, payments, information an...
Key Learnings <ul><li>Channel system deliverables  are: bulk breaking, place utility, reduced waiting time, providing asso...
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Distribution 2

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Distribution 2

  1. 1. Chapter 9 <ul><li>Marketing Channels </li></ul>SDM- Ch 9 Tata McGraw Hill Publishing
  2. 2. Learning Objectives <ul><li>Understand channel structure and how channels manage discrepancies </li></ul><ul><li>Understand concept of channel flows </li></ul><ul><li>Relationship of channel flows to service levels </li></ul><ul><li>Understand channel formats and levels </li></ul><ul><li>Understand what channel systems are expected to deliver </li></ul><ul><li>Prominent marketing and channel systems </li></ul>SDM- Ch 9 Tata McGraw Hill Publishing
  3. 3. Channel Functions <ul><li>Information gathering </li></ul><ul><li>Consumer motivation </li></ul><ul><li>Bargaining with suppliers </li></ul><ul><li>Placing orders </li></ul><ul><li>Financing </li></ul><ul><li>Inventory management </li></ul><ul><li>Risk bearing </li></ul><ul><li>After sales support </li></ul>SDM- Ch 9 Tata McGraw Hill Publishing
  4. 4. Role of Intermediaries SDM- Ch 9 Tata McGraw Hill Publishing Company 1 Company 2 Company 3 Intermediary Large number of CONSUMERS Direct and Indirect….
  5. 5. Direct Distribution <ul><li>Company to consumers or retailers without use of intermediaries. Also includes reaching Institutional buyers . </li></ul><ul><li>Selling on the Internet </li></ul><ul><li>If products are technically complex , this system is preferred </li></ul><ul><li>Cost is a major consideration to adopt this mode </li></ul>SDM- Ch 9 Tata McGraw Hill Publishing
  6. 6. Direct Distribution - Examples <ul><li>Banking services </li></ul><ul><li>Credit cards </li></ul><ul><li>Petrol / diesel – company own outlets </li></ul><ul><li>Land line phone connections </li></ul><ul><li>Health services </li></ul><ul><li>Utilities – electricity, water </li></ul><ul><li>Subsidized ration </li></ul><ul><li>Education </li></ul>SDM- Ch 9 Tata McGraw Hill Publishing
  7. 7. Indirect Distribution <ul><li>Goods may move through a set of intermediaries </li></ul><ul><ul><li>Most FMCG companies follow this route </li></ul></ul><ul><li>The intermediary has a far better reach than the company </li></ul><ul><li>The cost of operations of an intermediary like a wholesaler / retailer is shared with many businesses. </li></ul>SDM- Ch 9 Tata McGraw Hill Publishing
  8. 8. Indirect Distribution - Examples <ul><li>All FMCG, consumer durables and pharmaceutical </li></ul><ul><li>Petrol / diesel / cooking gas - franchisees </li></ul><ul><li>Insurance </li></ul><ul><li>Mobile phones </li></ul><ul><li>All kinds of passenger transport </li></ul>SDM- Ch 9 Tata McGraw Hill Publishing
  9. 9. Marketing Channel Systems <ul><li>Vertical : </li></ul><ul><ul><li>Corporate </li></ul></ul><ul><ul><li>Administered </li></ul></ul><ul><ul><li>Contractual </li></ul></ul><ul><li>Horizontal </li></ul><ul><li>Multi-channel </li></ul>SDM- Ch 9 Tata McGraw Hill Publishing Vertical….
  10. 10. Vertical Marketing System <ul><li>Various parties like producers, wholesalers and retailers act as a unified system to avoid conflicts </li></ul><ul><li>Improves operating efficiency and marketing effectiveness </li></ul><ul><li>3 types: </li></ul><ul><ul><li>Corporate </li></ul></ul><ul><ul><li>Administered </li></ul></ul><ul><ul><li>Contractual </li></ul></ul>SDM- Ch 9 Tata McGraw Hill Publishing Corporate…
  11. 11. Corporate VMS <ul><li>Combines successive stages of production and distribution under single ownership </li></ul><ul><li>Examples : </li></ul><ul><ul><li>Bata, Bombay Dyeing, Raymond </li></ul></ul><ul><ul><li>Sears, Goodyear </li></ul></ul><ul><ul><li>Suppliers of food items could be also their own supplying firms - like Nilgiris </li></ul></ul>SDM- Ch 9 Tata McGraw Hill Publishing Administered…
  12. 12. Administered VMS <ul><li>Co-ordinates distribution activities </li></ul><ul><li>Gains market power by dominating a channel </li></ul><ul><li>Usually true of dominant brands like GE, Kodak, Pepsi, Gillette, Coke and HLL in certain locations </li></ul><ul><ul><li>Command high level of co-operation in shelf space, displays, pricing policies and promotion strategies </li></ul></ul>SDM- Ch 9 Tata McGraw Hill Publishing Contractual…
  13. 13. Contractual VMS <ul><li>Independent producers, wholesalers and retailers operate on a contract </li></ul><ul><li>Could take the forms of: </li></ul><ul><ul><li>Wholesaler sponsored voluntary chains </li></ul></ul><ul><ul><li>Retailer co-operatives </li></ul></ul><ul><ul><li>Manufacturer sponsored retail or wholesale franchise </li></ul></ul><ul><ul><li>Franchise organizations </li></ul></ul><ul><ul><li>Service firm sponsored retail franchise </li></ul></ul>SDM- Ch 9 Tata McGraw Hill Publishing
  14. 14. Horizontal Marketing Systems <ul><li>Two or more unrelated companies join together to pool resources and exploit an emerging market opportunity </li></ul><ul><ul><li>In-store banking in hotels, big stores </li></ul></ul><ul><ul><li>Retail outlets in petrol bunks </li></ul></ul><ul><ul><li>Coffee Day outlets in airports </li></ul></ul>SDM- Ch 9 Tata McGraw Hill Publishing Multi-channel…
  15. 15. Multi-channel Distribution <ul><li>Company uses different channels to reach / same or different market segments </li></ul><ul><ul><li>Most FMCG companies have separate networks for retail market and institutions </li></ul></ul><ul><ul><li>Pharma companies may use different channels to reach doctors, chemists and hospitals </li></ul></ul>SDM- Ch 9 Tata McGraw Hill Publishing
  16. 16. Multi-channel Distribution <ul><li>Used in situations where : </li></ul><ul><ul><li>Same product but different market segments </li></ul></ul><ul><ul><li>Unrelated products in same market – detergents and ice creams (HLL) </li></ul></ul><ul><ul><li>Size of buyers varies </li></ul></ul><ul><ul><li>Geographic concentration of potential consumers varies </li></ul></ul><ul><ul><li>Reach is difficult </li></ul></ul>SDM- Ch 9 Tata McGraw Hill Publishing
  17. 17. Distribution Channels <ul><li>Take care of the following ‘discrepancies’ </li></ul><ul><ul><li>Spatial </li></ul></ul><ul><ul><li>Temporal </li></ul></ul><ul><ul><li>Breaking bulk </li></ul></ul><ul><ul><li>Assortment and </li></ul></ul><ul><ul><li>Financial support </li></ul></ul>SDM- Ch 9 Tata McGraw Hill Publishing
  18. 18. Spatial Discrepancy <ul><li>The channel system helps reduce the ‘distance’ between the producer and the consumer of his products. </li></ul><ul><ul><li>Consumers are scattered </li></ul></ul><ul><ul><li>Have to be reached cost effectively </li></ul></ul><ul><li>Example : companies produce products in one location even for global needs </li></ul>SDM- Ch 9 Tata McGraw Hill Publishing
  19. 19. Temporal Discrepancy <ul><li>The channel system helps in speeding up in meeting the requirement of the consumers </li></ul><ul><ul><li>Time when the product is made and when it is consumed is different </li></ul></ul><ul><ul><li>Limited number of production points but hundreds of consumers </li></ul></ul><ul><li>Maruti plant in Gurgaon – cars and spares are available when the consumer wants </li></ul>SDM- Ch 9 Tata McGraw Hill Publishing
  20. 20. Breaking Bulk <ul><li>The channel system reduces large quantities into consumer acceptable lot sizes </li></ul><ul><ul><li>Production has to be in large quantities to benefit from economies of scale </li></ul></ul><ul><ul><li>Consumption is necessarily in small lot sizes </li></ul></ul><ul><li>India is the ultimate example in breaking bulk – you can buy one cigarette, one Anacin, one toffee etc </li></ul>SDM- Ch 9 Tata McGraw Hill Publishing
  21. 21. Need for Assortment <ul><li>The channel system helps aggregate a range of products for the benefit of the consumer – it could be made by one company or several of them. </li></ul><ul><ul><li>For the same product, it could be a variety of brands and pack sizes </li></ul></ul><ul><li>MICO makes fuel injection equipment, spark plugs etc in different plants but its dealer will sell the entire range. </li></ul>SDM- Ch 9 Tata McGraw Hill Publishing
  22. 22. Financial Support <ul><li>The channel system provides critical working capital to its customers by extending credit. </li></ul><ul><li>Some channel members like stockists and wholesalers finance the business of their customers. </li></ul><ul><ul><li>Medical diagnostic equipment to hospitals </li></ul></ul>SDM- Ch 9 Tata McGraw Hill Publishing
  23. 23. Channel Flows <ul><li>Forward flow – company to its customers – goods and services </li></ul><ul><li>Backward flow – customers to the company – payment for the goods. Returned goods. </li></ul><ul><li>Flows both ways - information </li></ul>SDM- Ch 9 Tata McGraw Hill Publishing
  24. 24. Three Flows Recognized SDM- Ch 9 Tata McGraw Hill Publishing FORWARD BOTH WAYS BACKWARD Goods and Services Information Payment for goods / returns Company Customers
  25. 25. The Five Channel Flows <ul><li>Physical flow of goods </li></ul><ul><li>Title flow of goods (negotiation, ownership and risk sharing also) </li></ul><ul><li>Payment flows (financing and payment) </li></ul><ul><li>Information flow (about goods, orders placed and orders executed) </li></ul><ul><li>Promotion flows </li></ul>SDM- Ch 9 Tata McGraw Hill Publishing Who is responsible?
  26. 26. Channel Flows <ul><li>Some channel member/s have to perform them </li></ul><ul><li>There is a cost associated with each flow </li></ul><ul><li>If a channel member is discontinued, the flow has to be performed by another </li></ul><ul><li>All flows and transactions can be effective only with timely, accurate and correct information </li></ul><ul><li>The channel flow is ideally to be handled by the most competent channel member who can deliver best service at the lowest cost. </li></ul>SDM- Ch 9 Tata McGraw Hill Publishing
  27. 27. Degree of Involvement SDM- Ch 9 Tata McGraw Hill Publishing Channel formats… Manufacturer C&FA or Distribution Center Distributor, dealers Wholesaler or retailer Physical Title / ownership Information Risk sharing Promotions Physical Title Information Payment Order processing Physical Title / ownership Information Payment Order placement Negotiation Risk sharing Promotions Physical Title / ownership Information Payment Order placement Negotiation Risk sharing Promotions
  28. 28. Channel Formats <ul><li>Is decided by who ‘drives’ the channel system: </li></ul><ul><ul><li>Producer driven </li></ul></ul><ul><ul><li>Seller driven </li></ul></ul><ul><ul><li>Service driven </li></ul></ul><ul><ul><li>Others </li></ul></ul>SDM- Ch 9 Tata McGraw Hill Publishing
  29. 29. Producer Driven <ul><li>This is the effort of the manufacturer to reach the product to his consumers. Examples: </li></ul><ul><ul><li>Company owned retail outlets – petrol, Bata, Reliance mobiles </li></ul></ul><ul><ul><li>Licensed outlets – KMF </li></ul></ul><ul><ul><li>Consignment selling agents </li></ul></ul><ul><ul><li>Franchisees </li></ul></ul><ul><ul><li>Brokers </li></ul></ul><ul><ul><li>Vending machines </li></ul></ul><ul><ul><li>Company contracted distributors </li></ul></ul>SDM- Ch 9 Tata McGraw Hill Publishing
  30. 30. Seller Driven <ul><li>Use of existing channels to reach the largest number of end users </li></ul><ul><ul><li>Existing wholesalers and retailers </li></ul></ul><ul><ul><li>Modern retail formats </li></ul></ul><ul><ul><li>Specialty stores – Shoppers’ Stop </li></ul></ul><ul><ul><li>Discount stores – Subhiksha </li></ul></ul><ul><ul><li>Pheriwalas </li></ul></ul>SDM- Ch 9 Tata McGraw Hill Publishing
  31. 31. Service Driven <ul><li>These are the people who facilitate the distribution </li></ul><ul><ul><li>Transporters and freight forwarders </li></ul></ul><ul><ul><li>Providers of warehouse space </li></ul></ul><ul><ul><li>C&F agents </li></ul></ul><ul><ul><li>3P Logistics service providers </li></ul></ul><ul><ul><li>Couriers </li></ul></ul>SDM- Ch 9 Tata McGraw Hill Publishing
  32. 32. Other formats <ul><li>Multi-level marketing systems – Amway, Modicare, Tupperware, Herbalife </li></ul><ul><li>Co-operative societies </li></ul><ul><li>Telephone kiosks </li></ul><ul><li>TV home shopping </li></ul><ul><li>Catalogue marketing </li></ul><ul><li>The internet </li></ul><ul><li>Exhibitions, fairs and trade shows </li></ul><ul><li>Data base marketing </li></ul>SDM- Ch 9 Tata McGraw Hill Publishing Channel levels…
  33. 33. Channel Levels <ul><li>Zero level – if the product or service is provided to the end user directly by the company. </li></ul><ul><ul><li>Used mostly by companies delivering service like health, education, banking (also known as service channels) </li></ul></ul><ul><li>One level – consists of one intermediary </li></ul><ul><li>Two level – consists of two intermediaries and is the most common for FMCG products </li></ul>SDM- Ch 9 Tata McGraw Hill Publishing
  34. 34. Service Channel <ul><li>Companies establish their own unique channels to deliver services like health, education, banking, insurance etc </li></ul><ul><ul><li>Hundreds of bank branches to be close to prospects </li></ul></ul><ul><ul><li>Banks may also recruit independent agents to get customers to walk in </li></ul></ul><ul><ul><li>Consulting or IT firm uses one team for Biz Development and another for execution </li></ul></ul><ul><ul><li>Musician or magician may use mass media, events or web sites to reach customers </li></ul></ul>SDM- Ch 9 Tata McGraw Hill Publishing
  35. 35. Channel Levels SDM- Ch 9 Tata McGraw Hill Publishing Manufacturer Manufacturer Manufacturer End User Retailer End User Retailer End User Distributor/ wholesaler Zero level Two level One level Summarize Expectations…
  36. 36. Key Learnings <ul><li>Marketing channels are responsible for flows – physical possession, title, payments, information and promotion covered by forward, backward and flows both ways </li></ul><ul><li>Each channel partner has a different role in supporting customer service through suitable channel flows </li></ul><ul><li>Number of categories operating in a channel system define the channel levels as one, two etc </li></ul>SDM- Ch 9 Tata McGraw Hill Publishing
  37. 37. Key Learnings <ul><li>Channel system deliverables are: bulk breaking, place utility, reduced waiting time, providing assortment, financial help, installation and after sales support. </li></ul><ul><li>Customer service has to be done at optimum cost </li></ul><ul><li>Marketing channel systems are categorised as vertical, horizontal and multi-channel depending on the structure and the functionality </li></ul>SDM- Ch 9 Tata McGraw Hill Publishing
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